Bipartisan solution to Social Security reform

Last night at Boots and Sabers, Owen pointed out this post by WILLisms showing the performance of a theoretical personal account had Congress reformed Social Security in 2005. Owen's conclusion:

Note: This is a bipartisan failure. Neither party has done squat about it.

But there was a bipartisan solution in 2005. Being an email hoarder, I never deleted the email exchange that hammered out the agreement.

The solution was developed in the course of four hours between me and my leftie friend. My leftie friend's credentials:

• Has aways voted Democratic
• Union member
• State government employee
• Works in Madison
• Adores Jim Doyle

I could go on. Here is the historic exchange.

-----Original Message-----
From: Headless Blogger
Sent: Tuesday, February 22, 2005 8:56 AM
To: Leftie Friend; Innocent Bystander
Subject: A different way to look at things

A couple observations from Thomas Sowell:

"Raising Social Security taxes today will not leave a dime more to pay pensions to future retirees. Right now there is more money coming into the system than is going out -- and the difference gets spent on other things. Higher taxes now would mean a bigger excess to be spent on other things, leaving nothing more for the future."·

"People who oppose the privatization of Social Security call it "a risky scheme." But is anything more risky than turning money over to politicians and hoping that they won't spend it before you retire? They have been spending the "trust fund" for decades."

-----Original Message-----
From: Leftie Friend
Sent: Tuesday, February 22, 2005 9:04 AM
To: Headless Blogger; Innocent Bystander
Subject: RE: A different way to look at things

He's right in many ways. What they should do is stop raiding it and then use professional investment boards to invest a portion of the total fund not on an individual basis but as a whole. Just like many states do with their pension funds i.e. Wisconsin State Investment Board. That would address all of the concerns about the personal accounts.

-----Original Message-----
From: HB
Sent: Tuesday, February 22, 2005 9:40 AM
To: LF; IB
Subject: RE: A different way to look at things

Your idea would be a good start (I still believe that higher SS taxes and lower payouts to rich guys --- like you & me --- are inevitably needed to balance things), but then someone will raise the concern about the government investing in private markets and disrupting market forces. The Trust Fund could be turned over to private investment firms to get around that. Someone else could also claim that it is still "a risky scheme."

I agree that your plan does the same as the private accounts, but the private accounts make future raises in SS taxes an easier sell to the public.

Your plan also requires a change in the law that requires all excess SS funds to be "invested" in Gov't securities (i.e., spent now on other things). This may be Al Gore's Lock Box idea, if so, he did a lousy job of selling it.

-----Original Message-----
From: LF
Sent: Tuesday, February 22, 2005 9:53 AM
To: HB; IB
Subject: RE: A different way to look at things

I think it was Al's idea. Like most Democrats, he's a poor salesman. I think it has to be a government investment board with GAO/DOJ oversight, too much chance of abuse otherwise.

-----Original Message-----
From: HB
Sent: Tuesday, February 22, 2005 10:34 AM
To: LF; IB
Subject: RE: A different way to look at things

The oversight is not a big deal, they can just do it like they do with the current Federal retirement program (their version of the 401(k)).

Re: Al being a salesman --- it is a lot easier to sell "Private Accounts" than a "Government Controlled Lock Box" to the majority of Americans (51% to 48% when we last checked in November 2004).

Another point, regarding Privatization (or your Gov't controlled account - let's call it the "Investment Option"): Since (by law) the "SS Trust Fund" is comprised solely of US government securities, the "Trust Fund" is nothing but a promise made by the government to tax future taxpayers. These taxes will be used to pay back the moneys (with interest) which were collected from current taxes to pay future retirement benefits (& spent by Washington on other things). The Investment Option removes these funds from use by the government for pork and other spending (name your own pet peeve here) and forces Congress to raise current taxes if they want to maintain their current levels of spending.

-----Original Message-----
From: LF
Sent: Tuesday, February 22, 2005 10:54 AM
To: HB; IB
Subject: RE: A different way to look at things

You got it. This is just another way to shrink the federal budget or balloon the deficit.

-----Original Message-----
From: HB
Sent: Tuesday, February 22, 2005 11:09 AM
To: LF; IBSubject:
RE: A different way to look at things

Are we agreeing?

Seriously, if "WE" can agree on this, we might have come up with a way to sell it to both Congress and the Prez. I think our only disagreement is whether there are to be Private or Government accounts. Is this something that could be left as a choice to each citizen (you are pro-choice!)?

They could choose from A, B or C:

A) Remain in current SS system (for codgers like the Innocent Bystander)
B) Join government controlled investment system (for the risk-adverse)
C) Establish Private SS Retirement Account (for gamblers)

I'll forward this thread to Paul Ryan.

-----Original Message-----
From: LF
Sent: Tuesday, February 22, 2005 11:38 AM
To: HB; IB
Subject: RE: A different way to look at things

I think option B is the only choice so the system is even for everyone and more importantly to minimize future law suits. Include all of the Senators/Representatives.

-----Original Message-----
From: HB
Sent: Tuesday, February 22, 2005 12:11 PM
To: LF; IB
Subject: RE: A different way to look at things

I think I see your point, but we have to get away from the current system of benefits, because a Ponzi Scheme cannot be indefinitely self-sustaining.

How about a government controlled investment fund, with two options?

A) Current defined benefit plan for codgers (with a means test and increased taxation).
B) A defined contribution plan for younger workers, with asset ownership by the worker of their portion of the government fund.

-----Original Message-----
From: LF
Sent: Tuesday, February 22, 2005 12:59 PM
To: HB; IB
Subject: RE: A different way to look at things

Sounds reasonable. My state pension is similar to choice B. I have two fund choices to put it in, a fixed rate fund (The ten-year (compounded) average annual Fixed Trust Fund effective rate is 11.3%) or a variable rate fund (The ten-year (compounded) average annual Variable Trust Fund effective rate is 10.7%). For 2004, the fixed effective rate is 8.5% and the variable effective rate is 12%. These returns are after management fees are taken out. I do 50% for both for investment diversity reasons. Not the greatest returns, but very consistent over the long term.

-----End of Email Thread-----


I forgot to forward the thread to Congressman Ryan. It is my fault this solution was never implemented.